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By now, some of you have received one or more notices from your broker or custodian about changes to your chosen money market fund. What do these changes mean to you?

The world of money market funds changed forever back in 2008, when an investment vehicle called the Reserve Primary Fund loaded up on loan obligations backed by Lehman Brothers. Lehman famously went under, and the fund “broke the buck,” meaning that when Lehman was unable to pay back its loans, the value of a share of the Reserve Primary Fund dipped under $1.

This was the first time many investors realized that money market funds were not risk-free. Many panicked, causing a run on other money market instruments, and overall the event added another unhappy twist to the financial crisis.

Fast forward to the near future: October 14, 2016, the date when new protective regulations implemented by the Securities and Exchange Commission, will go into effect. Yes, the government wheels creak along that slowly.

What regulations? To make sure that the funds are able to redeem at par ($1 per share), all money market instruments that invest in taxable corporate debt or municipal bonds, and have institutional investors, will have to keep at least 10% of their assets either in cash, U.S. Treasury securities or other securities that will convert to cash within one day (many money market funds make overnight loans to lending institutions in the U.S. and Europe.)

As further safeguards, at least 30% of a money market fund’s assets will have to be liquid within one week, and funds will be restricted from investing more than 3% of their assets in lower-quality second-tier securities. No more than one-half of one percent of their assets can be invested in second-tier securities issued by any single issuer. Finally, money market funds will not be allowed to buy second-tier securities that mature in more than 45 days.

What happens if all these safeguards don’t work, and a share of the money market fund still goes below $1? In those (probably rare) instances, the fund’s board of directors are permitted to suspend your ability to redeem your investment for up to ten days, and under certain circumstances, they may impose a 1% or 2% fee on your redemptions. That’s pretty steep, considering that you’re probably currently receiving less than a 1% return on your money market funds.

The bottom line is that investors will still be able to put $1 into a money market fund and expect to get $1 back out again when they sell shares—with, perhaps, a tiny bit more confidence a few months from now. Just don’t expect these money market funds to keep up with the pace of inflation.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

On Friday September 9 2016, the S&P 500 index fell 2.4%, while the Dow Jones Industrial Average fell 2.1%. This was the first “greater than 1%” sell-off since June, its worst single-session loss in more than two months. The drop ended a relatively quiet summer for U.S. stocks, which had touched new highs in mid-August. But despite Friday’s jarring downdraft, market internals remain solid and equity markets are within stones throw of their recent peaks. Of course, the press reports are describing it as a full-blown market panic.

Even if the short-term pullback in stocks persists, we do not believe the longer-term bull market—which has been underway since 2009—is dead. U.S. economic data has generally shown signs of strength, and an improving economy should support the stock market over the long term.

So what’s going on? Efforts to trace the reason why quick-twitch traders scattered for the hills on Friday turned up two suspects. The first was Boston Federal Reserve President Eric Rosengren, who sits at the table of Fed policy makers who decide when (and how much) to raise the Federal Funds rate. On Friday, he announced that there was a “reasonable case” for raising interest rates in the U.S. economy. According to a number of observers, traders had previously believed there was a 12% chance of a September rate hike by the Fed; now, they think there’s a 24% chance that the rates will go up after the Fed’s September 21-22 meeting. Oh the horror of a less than 1 in 4 chance of a quarter-point (0.25%) rise in short-term interest rates–sell everything!

If the Fed decides the economy is healthy enough to sustain another rise in interest rates—from rates that are still at historic lows—why would that be bad for stocks? Any rise in bond rates would make bond investments more attractive compared with stocks, and therefore might entice some investors to sell stocks and buy bonds. However, with dividends from the S&P 500 stocks averaging 2.09%, compared with a 1.67% yield from 10-year Treasury bonds, this might not be a money-making trade.

If the possibility of a 0.25% rise in short-term interest rates doesn’t send you into a panic, maybe a pronouncement by bond guru Jeffrey Gundlach, of DoubleLine Capital Management, will make you quiver. Gundlach’s exact words, which are said to have helped send Friday’s markets into a tailspin, were: “Interest rates have bottomed. They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something, and you’re supposed to be defensive.” My thoughts on this: pundits have been declaring the end of the bull market in bonds for many years and have been proven wrong time and time again. Statements like this are pretty worthless in my opinion. Could he be right? Sure, there’s a 50/50 chance.

Short-term traders appear to have decided that Gundlach was telling them to retreat to the sidelines, and some have speculated that a small exodus caused automatic program trading—that is, money management algorithms that are programmed to sell stocks whenever they sense that there are others selling. After the computers had taken the market down by 1%, human investors noticed and began selling as well.

Uncertainty about central bank policy outside the U.S. was another potential cause for Friday’s volatility. On Thursday, the European Central Bank opted for no new easing moves and Japanese bond yields have continued to rise. The two events have sent a message to markets that quantitative easing (bond buying and other monetary stimulus) may have lost some of its efficacy and will not continue indefinitely.

For seasoned investors, a 2% drop after a very long market calm simply means a return to normal volatility. This is generally good news for investors, because volatility has historically provided more upside than downside, and because these occasional downdrafts provide a chance to add to your stock holdings at bargain prices. I’ve been telling clients all summer long to expect a volatile and rocky September and October. Does that make me smart? Nope, historically, periods of calm like we’ve seen are always followed by volatility. September and October tend to be more volatile than other months of the year. Markets have been unusually calm this summer, and prolonged periods of low volatility can make markets susceptible to news and rumors. Given the emphasis the market is now placing on Fed policy—and the uncertainty surrounding it—we wouldn’t be surprised to see markets continue to experience volatile swings when news or economic data suggest the Fed may, or may not, raise interest rates.

That doesn’t, of course, mean that we know what will happen when the exchanges open back up on Monday, or whether the trend will be up or down next week or for the remainder of the month. Nor do we know whether the Fed will raise rates in late September, or how THAT will affect the market.

As for bonds, while rising interest rates can translate into falling bond prices—bond yields typically move inversely to bond prices—it’s important to remember that yields generally don’t move in tandem all along the yield curve. The Fed influences short-term interest rates, but long-term interest rates are generally affected by other factors, such as economic growth and inflation expectations. And even if the Fed does raise short-term interest rates again this year, I would anticipate that future rate hikes would be gradual, as inflation remains low and the U.S. economy is only growing moderately.

That said, periods of market volatility are a good time to review your risk tolerance and make sure your portfolio is aligned with your time horizon and investing goals. A well-diversified portfolio, with a mix of stocks, bonds and cash allocated appropriately based on your goals and risk tolerance, can help you weather periods of market turbulence.

All we can say with certainty is that there have been quite a number of temporary panics during the bull market that started in March 2009, and selling out at any of them would have been a mistake. You must resist overreacting to swings in the market. Stock market fluctuations are a normal part of investing; panicking and pulling money out of the market may mean missing out on a potential rebound.

The U.S. economy is showing no sign of collapse, job creation is stable and a rise in interest rates from near-negative levels would probably be good for long-term economic growth. The Institute for Supply Management survey for the manufacturing sector recently showed an unexpected decline, and the service sector moved down by more than economists had expected, so I will be monitoring upcoming survey results closely to see if this develops into a trend. The employment situation remains firm; new job openings hit a record high in July and new claims for unemployment remain near recent lows.

While it may be prudent to trim some profits, panic is seldom a good recipe for making money in the markets, and our best guess is that Friday will prove to have been no exception. Market volatility is unnerving, but it’s a normal—and normally short-lived—part of investing. If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the noise and focus on your long-term goals.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

On March 31, 2016, the U.S. Department of Homeland Security, in collaboration with the Canadian Cyber Incident Response Centre, issued a joint alert on ransomware (1). Less than one month later, anti-malware maker Enigma Software reported that April 2016 was the “worst month for ransomware on record in the U.S.” (2). In an effort to increase awareness to this ever-growing cybersecurity threat, I’d like to share the below information with you today:

What is Ransomware?

According to the U.S. Computer Emergency Readiness Team (“US-CERT”), ransomware is a specific type of malicious program (i.e., a virus) where the victim’s computer, network, and/or files become strongly encrypted to the point they are effectively rendered useless. Shortly after the victim realizes what happened, he or she typically receives a message demanding a ransom in exchange for restoring access to the affected systems and data.

How is Ransomware Spread?

According to US-CERT, ransomware can be spread through e-mails that contain the malicious program or contain links to an infected website, or through messages or links sent through social media; however, in some recent variants, ransomware was spread by means of a “drive-by download attack,” which occurs when an attacker covertly “injects” an ordinary website—usually a trusted or popular website—with malicious code, which, in turn, is downloaded and installed on unsuspecting visitors’ computers. An October 2014 article in SecurityWeek magazine explains that many drive-by download attacks target users running out-of-date or older versions of common software programs; users who fail to promptly install the most current security patches can also easily fall victim to this method of attack (3).

Impact

According to Kaspersky Lab, cybersecurity experts found that in 2015, one in three business computers was exposed at least once to an internet-based attack; during that same timeframe, more than 50,000 corporate machines fell victim to ransomware attacks (4). Businesses, however, haven’t been the only target. According to the FBI, victims have included hospitals, school districts, state and local governments, and law enforcement agencies (5). In short, anyone with a computer and internet access could potentially become the next victim of a ransomware attack.

Solutions

Enigma Software and US-CERT provided recommendations to help minimize the impacts of a ransomware attack, including:

1. Back up your data regularly (at least weekly) to an external device that isn’t regularly connected to the network. Keep in mind that ransomware will target anything connected to an infected computer or network; unless the computer or network has been completely wiped clean of any trace of the malicious program, the ransomware will easily spread to any device connected, even after infection. Disconnect the backup drive after the backup and store it in a safe, secure and weatherproof location. I recommend that you keep at least two backup drives and rotate your backups between them.

2. Update your software. Keep your operating system and software up-to-date with all the latest patches, especially critical security patches. Better yet, allow or set up Windows to automatically update your PC with the latest patches.

3. Maintain up-to-date anti-virus software, and ensure that virus updates are downloaded automatically. Check with your internet provider. They may supply a commercial security suite at no or little cost to you.

4. Think before you click. Do not click on unfamiliar links sent in unsolicited messages or e-mails: social media accounts can be hijacked, and e-mails can be spoofed, so even a trusted sender could really be a wolf in sheep’s clothing.

5. Contact your local FBI field office immediately if you become the victim of a ransomware attack. Avoid paying the ransom if at all possible. According to the FBI, paying a ransom does not guarantee that you will regain access to your data; in a number of instances, individuals who paid the ransom were never provided with decryption keys.

And finally, more than anything, have a plan. There are a number of resources on ransomware that contain useful considerations for both before and after a ransomware attack (6). While there is no certain way to protect against ransomware attacks, preventative preparation has the potential to mitigate the impact.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.